Answers to USAA’s questions

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The last post described USAA’s business model and why they favor member services over profits. This post shares their answers to your questions.

But first, I’ve been reminded that all is not necessarily sweetness & light at USAA HQ. After several days of persistent followup I found a scandalous complaint: the parking at their campus is really really tight. If you arrive behind the rush-hour crowd then you’re subject to a long walk under a brutal Texas sun. It’s so bad that instead of rewarding the best employees with cash bonuses or stock options, they get a reserved parking spot.

Sorry, that’s the nastiest dirt I could dig up. Contact me if you know of any other USAA scandals…

Before I get to the reader questions, let me describe what a roomful of unruly bandwidth-equipped bloggers can do to an unsuspecting conference speaker. One of the first questions about USAA’s financial services was whether they’d be offering business checking accounts. The speaker said that they’d heard the question before, but they didn’t see it as a core benefit to their customers. The blogger nodded her head and resumed tapping away at her netbook while he moved on to the next question.

As a USAA member for over three decades, I agreed with him. Why should USAA waste my premiums on subsidized business checking?!? Let the entrepreneurs pay for it out of their own cash flow!

About 15 minutes later, she raised her hand to deliver some feedback. “We just posted a question to our Facebook page: ‘What new USAA service would you most like to see?‘ We’ve had over 20 responses in the last few minutes, and the vast majority of them want business checking.” Silence filled the room. Finally the speaker asked the question that everyone else was thinking: “Why?”

It turns out that military spouses have a hard time keeping a job. Sure, they’re educated and hard-working. After running the family during a deployment, they certainly know how to supervise a team and get things done. But when you have to quit your job every 2-3 years to move to a new duty station, it’s hard to build a record that excites hiring managers. After confronting this issue a few times, many military spouses create their own jobs: they become entrepreneurs. Their sales bring in cash & checks, so they need a business checking account to handle the revenue.

But when you transfer every 2-3 years, especially overseas, it’s almost impossible to keep your business checking at your local bank. That’s why military spouses want USAA to offer business checking. They already trust the company for their insurance and their personal finances, and they’d like to keep their business with the same company.

To the speaker’s credit, Facebook’s feedback changed his mind. (This question got nearly 200 responses during the next 24 hours around the globe, and the vast majority wanted business checking.) Instead of seeing business checking as an expensive and highly-regulated money-losing convenience for a few niche users, now we all realized that it’s a desirable member service. So USAA is working the issue and they’ll let us know the timeline.

Here are other answers:

“Will the rates for the Flexible Retirement Savings Annuity and the Single Premium Immediate Annuity go up in 2012?” I think the Federal Reserve’s recent policy announcements could already predict the short answer to this question: “Probably not.” USAA will continue to remain competitive with the rest of the annuity market, but they’re not able to just hand out the cash. Annuity rates will rise (or stay down) with the rest of the market’s interest rates. Service is where they expect to gain customer share.

“What does USAA have to do to get a long-time insurance customer to think of them more readily for their financial products instead of NFCU, Pentagon Federal Credit Union, Vanguard, & Fidelity?” “USAA’s insurance rates are untouchable– how can we get the same cost/service package from investment and banking products?” I spent almost an hour over frosty beverages interrogating Scott “Ask USAA” Halliwell and other staff about this issue. USAA is unlikely to compete on the market’s lowest expenses for their mortgages and investments.

First & foremost, USAA wants to be an insurance company with great member service. They’re not trying to undercut massive financial institutions like NFCU or Vanguard– because USAA will never have enough members or assets to drive those giants out of the market. Even worse, cutting USAA’s own rates for their mortgages & investments would initially simply shift that expense burden to the rest of the member premiums.

USAA sees service as their biggest product. Those of us who don’t want to pay for service will find better deals at the TSP and PenFed and Fidelity, and we don’t need USAA’s help. However, members who have been blissfully paying exorbitant fees to Bank of AmericaEdward Jones other financial monoliths will get a huge price break at USAA. They may not find the lowest expenses, but they’ll enjoy service and trust. By not cutting their own profit margins to the bone, USAA can offer great service to a large group of people without raising premiums.

In the next post I’ll talk about another of their financial products that offers more great service.

“Is USAA insuring Hawaii homeowners again? What’s the plan for this hurricane season?” Well, not yet. USAA will insure Hawaii first-time homebuyers, but my website request for a quote on our existing home was met with “We are unable to provide you an Insurance Policy because of an increased exposure from coastal storm-related damages.” USAA will keep writing policies as long as their risk is not excessively concentrated in a costly natural disaster like 1992’s Hurricane Iniki or the 2006 earthquake. That might take another year or two.

The bigger issue behind this question is comparing USAA’s insurance rates to other companies. The insurance industry has created a huge confusopoly among different products for home, auto, & liability with different coverage limits, deductibles, and rebates. Conveniently, Chuck Oakes’ team at the Innovation Center has developed a few ways to cut through the fog. First, USAA has developed applications to read the rate-quote sheets of other insurance companies. Customers can take a photo with their smartphone, send it to a USAA rep, and wait for a comparison to be sent back. Second, USAA’s computer network will automatically scan and interpret the image to break it down for the rep to complete the comparison. Third, reps are testing a method to respond to customers via Facebook and Twitter– in the same way they now respond by e-mail and on the phone.

That sounds great but you still have to enter some data on the website, maybe talk to a rep, and match some categories & deductibles from other companies to get a rate comparison. Wouldn’t it be even better if you could just log into your USAA account, click on the “Compare rates” link, and a few seconds later read the competition’s summary? Well, it’s technically feasible. Watch this blog for the update.

“Advertising seems to be on the rise. Is new customer growth paying for it, or is the cost being passed on to us current customers? Is the cost of acquiring new customers going up or down?” “As your customer base widens, it would seem that the quality could also drop. I’m curious how USAA maintains their financial standards. More customers would equal more money for the execs, so it’s possible that exec’s interests could diverge from the customer’s interests.” USAA was started in 1922 by a group of Army officers who couldn’t get life insurance. Although they expanded their eligibility over the years to include Air Force and even Navy officers, they didn’t extend the offer to enlisted servicemembers until 1996. “Opening the ranks” was quite a culture shock to the entrenched membership, and you can imagine the grumbling and harrumphing that went on among certain senior members. However, the demographic fact was that the military was drawing down over 25% from 1991 onward, and USAA’s membership wasn’t growing fast enough to keep up their financial strength.

Along with officers & enlisted members, eligibility was also extended to family and certain other categories. However, one of USAA’s staff told me that the number of exceptions and loopholes made qualification rather complicated, and the membership still wasn’t growing fast enough to enable USAA to offer all the services that a larger association could support. A rather straightforward solution was to expand eligibility to “former officers and enlisted personnel who separated and were honorably discharged.” That tripled the potential members to nearly 60 million veterans and their families. Even without membership, anyone is eligible to sign up for USAA’s investment products, credit cards, life insurance, and most checking and savings products.

While USAA was reaching out to more members, their marketing staff realized that they needed to do a better job of reaching out to their existing members. Insurance customers weren’t aware that USAA offered investment services, and banking customers weren’t aware of all of USAA’s insurance products. Direct-mail costs were rising but the products weren’t working very well. They eventually cut their direct-mail program in favor of marketing through the press, radio, and television (look for the commercials on YouTube).

The ad campaign is succeeding far beyond expectations. Awareness of USAA is up 40%, awareness of their features and other information is up 20%, and awareness through their website and social media (Facebook) is up 80%. Not only are new members flocking to USAA, but the ad campaign seems to be inspiring the newbies to a higher standard of behavior. A significant number of the new members are actually turning out to be better customers than the current members– fewer missed mortgage payments, better credit-card histories, and better records on auto loans.

More members, lower acquisition costs, fewer delinquencies. I can live with that. (Will members see a bigger premium rebate in December?) USAA’s rapid growth may slow for a while as they absorb the data. (They already have a backlog of mortgage refinancings.) Now that the rush of new members has peaked, it may take a year or two for their analysts to verify these early results.

We were also told that bonuses don’t depend on the number of customers or the revenue. Employee incentives are based on exceptional service & retention, not recruiting.

Once again, here’s the disclaimer for the bloggers who attended this conference: “My trip to San Antonio to participate in the Blogger Event was fully provided to me by USAA.” Their network security center might have been monitoring our tweets, but they couldn’t buy our silence!

Do you have more questions for USAA? Well, you can always “Ask Scott”. But if you’d rather remain anonymous then use the “Contact me” box or send me an e-mail. And if you have a complaint, please post it here!

WHAT I DO: I help you reach financial independence. For free. I retired in 2002 after 20 years in the Navy's submarine force. I wrote "The Military Guide to Financial Independence and Retirement" to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

What is the word on the business checking account question? How can we follow up? Is there a group I can join to show USAA that I am one of the many who would really appreciate a USAA business checking account?

I don’t know how long it takes to roll out a business-checking service for eight million members, but one concern was the number of regulatory hoops that USAA would have to jump through. Until USAA rolls it out, the best option in this area is Navy Federal Credit Union: https://www.navyfederal.org/pdf/ebrochures/1284B.pdf

Mike, here’s what I have so far from Andy Collins, USAA FSB assistant vice president of product management: “We do hear from some members that they’d appreciate having a USAA business checking account, and we continually evaluate this – and other new product ideas. The challenge is that business checking is a very different product than personal checking. For example, there are substantially more reporting and compliance requirements. In addition, our checking product is designed for low-volume personal accounts, and the high volumes associated with business checking accounts would require significant investment in new IT infrastructure and people. The cost of offering these accounts is just too high now for the relatively small number of members who need them. We’ll continue to focus on making the most of our resources by helping our members with all of their personal banking needs.”

I’ve asked USAA for an interview with Andy to dig into some of the details of “how”, not just “why not”. I’ll put up a new post when I have more info.

I ran across this post after searching for “USAA business checking.” Looks like 1.5 years later, it’s still not an option at USAA. It’s not just military spouses who would benefit. I’m a veteran and just started a business.

It puzzles me that USAA publishes articles about business, entrepreneurship, and franchising, and offers small business insurance, yet still doesn’t offer business banking. I am sorely disappointed that I’ll have to find another bank for this. I’ve been with USAA for nearly 15 years now, and would prefer to keep everything in one place.

(The original version of the post used the words “USAA” and “business checking”, but not in one consecutive phrase. Now that I read your comment, I wish I’d thought to write it that way– so I just revised it to include your search phrase.)

Seems to me they’ve had enough time to follow through on that commitment. I’m passing your comments along to their communications staff, and maybe I’ll get another banking interview out of it. Either way I’ll let you know what I learn.

Thanks, Doug. I actually called USAA today to be doubly sure, and was told that they do not offer business banking.

And I did find the second post after I posted my comment, but it was after a few more search terms and a little more hoop-jumping. :-) The adjustment should help, though, and probably get you some more search volume.

Thank you for digging a little deeper on this! I am looking forward to what else you find out from Andy. It seems many other financial institutions manage transaction frequency by offering different account types (at different costs and with different benefits). It would seem that if I was running a small business with mostly online transactions and fewer than 25 physical check transactions a month I should be able to do this at no cost or a very low cost through USAA. If, for example, I had over 100 check transactions a month, I should be willing to pay more for some sort of advanced business checking account to pay for the administrative costs to which Andy was referring.